Beating Amazon

Over the last two years, there has been an important and not-so-subtle shift in how CEOs discuss responding to the competitive threat from disruptors, most notably Amazon.

In research conducted for “Getting Results From Your Digital Investments,” Amazon was described as a clear and present danger, one that required distributors to rediscover or reinvent their unique and defensible value created for customers.

This attitude was realistic given Amazon’s growth, its investment in capabilities including analytics and logistics, and customer online searching for problem-solving and solution awareness. Disruptive competition would come for wholesaler-distributors in their business market.

The only perceived defense was in finding a core value offering that could withstand proactive inroads from disruptors. The root of success could not lie in long-standing customer habits or legacy benefits. Rather, sustainable value must be rooted in measurable economic benefits — lower prices, improved productivity, sell-side growth — whatever was most important for customers.

This attitude was appropriate and got many distributors moving in the right direction. It was also defensive and pessimistic. It was about establishing a firewall against an advancing Amazon.

The danger was that any defense would prove to be a kind of Maginot Line, one that was incomplete because it did not fully extend to include collaborative fortifications with suppliers and was ultimately susceptible to an end-run by a game-changing opponent.

In a sense, Amazon is the ultimate end-runner as its business has deep pockets and is not held to financial returns expected by many distributors. Moreover, Amazon is competing on information technology and logistics platforms that cannot be matched by most, if any, distributors.

Time will tell, but today’s distributor CEOs often describe their plans in more optimistic, we-are-in-control-of-our-destiny language. As one leader explained, “We need to make plans to beat Amazon on our terms. That means reinventing what it means to be a distributor, not abandoning what we are. Now, if Amazon is successful in our market, we will lose business. But we don’t want to fight for leftover crumbs. We are driving out inefficiencies and improving productivity. And we are looking to add new value that is not too far afield from what we do today. If we are successful, we will add business that improves our margins and could even grow our top line.”

Distributor CEOs know there are difficult and dark days ahead. Many are pushing forward, however, with a renewed sense of optimism that they can overcome the intrinsic limitations of a distributor business model and pursue new opportunities enabled by digital tools.

Distributors have made progress, and it is important for CEOs to understand what has occurred and the learning that has been gained, then move their business forward with a confident and effective digital vision.